As the COVID-19 pandemic has progressed over the past months, the insurance industry has seen an increase in businesses' claims. Much of the early focus has been on insurance companies' ramifications that handle COVID-19 business interruption claims. Still, a broader look at the industry reveals that many other coverage lines are likely to see a significant boost in claims as well.
Here’s a better look at how COVID-19-related claims are affecting various coverage lines in the insurance industry.
Business Interruption
Business interruption coverage is usually sold as a commercial property insurance coverage component to provide relief to a client for lost profit and extra expenses when its operations are disrupted by physical loss or damage. However, closing a business due to a threat of exposure or spread of the coronavirus is not considered a direct physical loss or damage. This has opened the door to plenty of lawsuits and claims.
For instance, litigation started, and courts in Michigan, Texas, New York, and Washington, D.C. have already ruled in favor of the insurance industry in four crucial decisions. One only Missouri court refused to dismiss a similar suit on the procedural ground in contrast.
It’s important to note that multiple states, including New Jersey, New York, Ohio, and Massachusetts recently proposed legislation that would mandate business interruption coverage for alleged COVID-19-related losses even where policies have virus or bacteria exclusions.
Event Cancellation Policies
These policies usually cover loss directly resulting from an event's cancellation due to circumstances out of the insured's control, such as weather events and terrorism. This is specialized coverage that's meant to insure against financial loss, including lost revenue and other event-related expenses. An all-cause event cancellation policy could provide coverage for cancellations due to the coronavirus pandemic.
That being said, depending on the date of issue, policies may include exclusions for infectious diseases, government-mandated quarantines, or pandemics.
Insurance companies are anticipating the following:
- Trade organizations, music performers, entertainment companies, sports teams, and individuals forced to cancel personal events, like weddings, may seek recovery for losses.
- The viability of claims depends on the particular policy language and specific circumstances of the loss.
- In addition to exclusions for infectious diseases, COVID-19 claims may not be covered if the virus is considered a pre-existing condition.
Directors & Officers (D&O)
These policies provide claims-made coverage, typically covering companies for shareholder lawsuits and individuals for claims made against them while serving as directors or officers of an organization.
A D&O policy protects against the insured's wrongful acts, which are usually defined as the errors, omissions, misstatements, neglect, or breach of duty on behalf of the insured party. The first lawsuits related to COVID-19 have already been filed, and insurers and attorneys expect the pandemic to create a significant wave of claims targeting this coverage.
Errors & Omissions (E&O)
These policies, meant for insurance agents, cover actual or alleged acts, misstatements, errors, misleading statements, neglect or omissions by an agent or insurance broker while providing services for pay. The insuring language usually provides limited coverage for breaches of privacy and breaches of network security in the provision of services. Some policies also provide coverage for government claims and the costs of responding to legal claims.
In general, COVID-19 claims are likely to come up under many of the same E&O policy provisions that are usually the issue in other claims. The current economic climate brought on by the societal response to COVID-19 has increased the likelihood of many scenarios that lead to E&O claims.
About Axis Insurance
At Axis Insurance Services, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (877) 787-5258 to speak with one of our professionals.
